Published on 02 Jan 2019.
RAM Ratings has reaffirmed Gulf Investment Corporation G.S.C.’s (GIC or the Corporation) AAA/Stable/P1 financial institution ratings as well as the AAA/Stable ratings of its RM3.5 billion Sukuk Wakalah bi Istithmar Programme (2011/2031) and RM400 million Senior Unsecured Bonds (2008/2023). The reaffirmations reflect our view that the Corporation will continue to enjoy strong support from Gulf Co-operation Council (GCC) shareholders as it fulfils a unique mandate of supporting the region’s development. Although GIC is equally owned by the Gulf nations, we have applied heavier weights to the higher-rated sovereigns – Kuwait (rated gAA3(pi)/Stable/gP1(pi)), Saudi Arabia (rated gAA3(pi)/Stable/gP1(pi)), the United Arab Emirates (rated gAA2(pi)/Stable/gP1(pi)) and Qatar (rated gAA3(pi)/Stable/gP1(pi)) – in arriving at its ratings, given the proven track record of strong and timely support from these countries during the global financial crisis.
While protracted geopolitical tensions arising from the diplomatic standoff between Qatar and several GCC members remain a key downside risk to GIC’s ratings, the macroeconomic impact has largely been contained by Qatar’s swift response in accelerating economic reforms and increasing bilateral trade and investments with other countries. Notably, GIC’s operations have not been affected by the rift – its ongoing deleveraging efforts also reduce the need for additional capital in the near to medium term.
GIC’s business model is inherently risky in view of the longer gestation period and illiquidity of principal investments (PIs), which give rise to earnings volatility, market as well as impairment risks. Furthermore, the high concentration of its loan book in a few large names renders its earnings vulnerable to the fortunes of these companies, which are inextricably linked to the cyclicality of the commodity sectors in which they operate. Thanks to a strong rebound in the performance of its PIs – particularly the three largest – GIC’s pre-tax profit surged to USD121 million in fiscal 2017, augmenting further to USD127 million in 1H fiscal 2018 (fiscal 2016: USD57 million; 1H fiscal 2017: USD65 million). Meanwhile, the Bank’s liquidity profile stayed healthy with an average liquidity coverage ratio of 290% in 1H fiscal 2018. GIC’s capitalisation remained strong with a tier-1 capital ratio of 43% as at end-June 2018 (end-December 2016: 39%), while its leverage eased to 1.5 times (end-December 2016: 1.8 times) amid ongoing portfolio rebalancing.
Loh Kit Yoong
(603) 7628 1031
(603) 7628 1162
The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.
RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.
Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.
Published by RAM Rating Services Berhad
© Copyright 2019 by RAM Rating Services Berhad
Ratings on Gulf Investment Corporation GSC